9 types of employee fraud your business needs to be aware of

Employee fraud is surprisingly common with around one in five businesses in the UK affected at one time or another.

But this is no surprise. As a busy business owner, it can be difficult to see where money in your company is being spent.

The good news, however, is that armed with a bit of knowledge, you can soon learn to identify and deal with fraud and ultimately save money you didn’t even know you were losing.

In this article, we look at nine of the most common types of employee fraud, and what to do if you suspect they are happening in your business.

1) Employee theft

Of course, all forms of fraud are theft, but by this, we mean stealing cash, stationary or other items, or products or services directly from the company.

A common example of the latter might be an employee at a garage asking the service department to service their car for free. Although this may seem a reasonable request, unless their contract stipulates it is acceptable, it’s theft.

To find out more about how to investigate employee theft, check out this useful article by Wirehouse Employment Services.

2) Expense fraud

Expense fraud is committed when an employee claims more expenses than they are entitled to, either by inflating claims or completely falsifying them. Common examples include:

• Overstating business mileage
• Claiming for personal costs such as meals out
• Falsifying or doctoring receipts
• Forging a line manager’s signature on an expense claim form.

Unfortunately, expense fraud is rife, and anonymous studies report that anywhere between 40% and 80% of employees admit to fiddling expenses.

This means that it is highly possible your business is already the victim of this type of theft.

And it is unlikely to stop by itself. Excuses for expense fraud range from ‘everyone else does it so why shouldn’t I?’ to employees actually feeling entitled to commit it because they’ve recently worked overtime.

Tackling expense fraud requires a multi-pronged approach that includes ensuring your policies are transparent and claiming is easy, auditing expense reports, and ensuring offenders are dealt with appropriately.

One of the most effective ways to minimise this crime is by adopting an online expense management solution such as Expensemate which dispenses with the need for paper receipts.

This is effective because studies show employees who submit paper receipts are more than twice as likely to inflate their expenses than those using digital platforms.

Expense fraud is such a common form of theft, we’ve produced a more in-depth article on how to combat it. You can find it here.

3) Timesheet, bonus, and commission fraud

Falsifying timesheets is particularly prevalent among part-time employees, and bonus or commission fraud is most often committed by out-of-office staff such as sales reps.

The key to combatting this type of fraud is greater oversight. It thrives where there is insufficient supervision by line managers.

4) Falsely taking sick leave

Falsely taking sick leave costs UK businesses millions of pounds each year.

If an employee pulls an occasional sickie, it can be very difficult to prove, but if someone takes regular sick leave when you suspect they’re not ill, the situation needs addressing. Here’s some great advice on how to do that.

5) Payroll fraud

The two main types of payroll fraud are wage falsification and ghost employees.

Wage falsification is paying yourself more than your contracted amount or inflating someone else’s salary for a kickback.

The most effective way of preventing this is to separate processing payroll from issuing payments. Also, regularly check payroll budgets and payments for irregularities.

Ghost employees are people on the company payroll who don’t work in the business. They may be fictitious or previous employees whose name hasn’t been removed from the system.

A salary is paid to the fake employee, then the funds are diverted away by the fraudster.

To reduce the chance of this happening, ensure your employee database is up to date and watch out for employees with different names but the same address and bank details.

Unsurprisingly, Payroll themselves have written about this, and it's worth checking out what they have to say.

6) Billing fraud

Like kickbacks below, billing fraud is a type of procurement fraud and occurs when a supplier submits false, inflated, or duplicate invoices. It is usually carried out in collusion with someone inside the company who receives a kickback for processing the payment.

Spotting billing fraud requires robust oversight of invoice and payment records. Goods or services that can’t be accounted for, or records that are non-existent or don’t match up, are classic signs of procurement fraud.

7) Kickbacks

Employees may be offered kickbacks from suppliers to influence the outcome of a bid process, or to buy directly from them even though the supplier is overcharging or not offering best value.

This can end up costing small businesses tens or even hundreds of thousands of pounds each year, depending on the size of the contracts.

This type of fraud can be difficult to detect but if a contractor is not offering value, or an employee receives gifts or appears to have acquired sudden unexplained wealth, this could be a sign they’re taking bribes.

8) Data fraud

Data fraud involves the theft of confidential company information such as client databases, IP, or technology or finance algorithms, often with a view to selling these to a competitor. Unsurprisingly, it is the fastest-growing form of employee fraud.

Data fraud can be difficult to detect, but ensuring you have robust policies and restrictive covenants in place is a good place to start. As technology advances, more monitoring and analytics tools, including AI, are starting to emerge to help companies deal with the problem.

9) Falsifying CV or references

Employee fraud can start before someone even joins your company. Falsifying CVs and references are probably the most common forms of employee fraud and range from mild exaggeration to total deceit.

Recruitment can be time-consuming, but it is important to ensure a robust interview procedure to weed out dishonest candidates and to always check references.